MSE News: Budget 2014: Radical reforms to give greater access to pensions savings

timetrialler

djt1959 wrote: »

H I am confused, by the Chancellors Budget. My wife has a very small pension, which will be paid out for the first time in 7 days time, as follow, 25% cash free lump sum and an annual annuity. Could she have with drawn the whole amount of the pension, valued at around £17,000 :think:

I am in a simular position, have a £12,000 which I can access in June this year. Could I also draw this amount in full?

Both these pensions play a minor role in our retirement plans as we have considerable NHS pensions

Regards
Dave

P.S please help if you can:money::happyhear

If you feel that your wife may benefit from the new pension rules then it is worth checking if she can cancel her annuity. It is my understanding that those people who have been in receipt for 30 days or less have the right to cancel.

Both you and your wife may be able to withdraw the entire pot (as of next week) as they are valued below £30000

If you enter the following (without quotes) into Google you'll find some websites which may be helpful to you.

"cancel annuity pension 30 days budget"

timetrialler

I was pleased but surprised by the pension changes and wondered if there would be any restrictions imposed to prevent people from using the new rules to avoid paying income tax. As I am over 55 and working it seems to me that I could now start a new pension and pay (for example) £10000 into it over the coming year. As a higher rate tax payer this would reduce my take-home pay by £6000 (ignoring NI). In a year's time I could withdraw the 25% lump sum and pay 40% tax on the remainder. Ignoring any investment loss/gain I'd receive a total of £7000 - which is an interest rate of almost 17% on my £6000 "investment". The extra £1000 I'd get would be courtesy of the tax man.
And I could do this every year, reducing my tax to 75% of normal on the amount I pay into each pension plan I take out.
Does anybody know of a reason why this method of tax avoidance wouldn't work? It

mania112

chubster wrote: »

I have a free standing AVC with a small amount of money invested, does anyone know if the same rules apply i.e. would I be able to withdraw the whole amount when I am 55?

AVC, Freestanding AVC, Personal Pensions, SIPPs, SSAS, GPPs, EPPs, Stakeholders, RACs, CIMP, COMP, S32 Buyouts

All of these (and probably plenty more i've missed) are known as money purchase or defined contribution pensions.

You or your employer pay money into them and the pension grows like you'd expect from a savings account. The final value is then used to fund your retirement.

All of these fall into the new remit George has announced - from April 2015 unrestricted access to this fund. So in theory 100% can be dumped into your bank account from age 55 (the age is changing to be 10 years before your State Pension Age, not sure when - possibly not until 2028).

It's easier to mention the types of pension which ARENT covered by this announcement - Final Salary, Deferred Annuity.

These are known as Defined Benefit schemes. These are schemes which you are a member of. You have no fund accrued in it personally, but through employment you build up an entitlement to a regular income from the scheme in retirement.

Some money purchase pensions contain defined benefits as a result of contracting out of the second state pension (known as GMP - guaranteed minimum pension). I haven't yet seen any specific details about what you can and can't do with these.

scubascuba3

I'm still excited about these pension changes.

I plan to:
Retire early and live abroad, somewhere far cheaper than UK.
At 55 take 25%
Then take enough drawdown to be under the lower tax limit. So the aim will be to pay no tax unless I can't subsidise by cash/investments alone in any year.

Above someone mention the pension crystallises. What do you mean by that?

My expectation is my pension fund would still be invested in investment funds in my SIPP which I reduce by the 25% and regular withdrawal. I'd still expect the pension funds to go up and down with the market.

Anyone think otherwise?

atush

I am dubious that linked AVCs and the like are included in this, as they are tied to the main scheme retirement age.

I dont see where this has been addressed in the reports, but do agree that eventually (april 2015 or later) it will/should be.

but if the person doesn't want to retire early, and the AVC's get salary sacrifice (so save on tax/nics) then I would continue.

If they dont, use a DC plan instead.

clivep

Will there be any restrictions or tax implications for paying into a new pension plan whilst you are taking money out of a different plan under the new rules?

The new access to your pot looks like the current flexible drawdown without being conditional on having other income. With the existing flexible drawdown there are restrictions on contributions to other pension plans.

e.g. I am over 60 and have no taxable income.
I contribute £2880 into a stakeholder pension which the tax man tops up by £720 to make £3600.
The following year I cash in the scheme and start another.
The one I cash in gives me 25% tax free of £900. Under the new rules I'll be able to take the remaining £2700 subject to basic rate tax but as this is well under my £10,500 allowance then I'll not pay any tax on it. Total I'll get is £3600.

Repeat year after year. £2880 in £3600 out. They're no going allow this are they?

Terry_spurs

Would like some advice please.
My wife has just turned 60 and wants to carry on working till her state pension comes into effect when she reaches 65.
She has a works pension that is nearly £25,000 in total.
Would she be able to take that sum out,subject to tax obviously and carry on working.
Also this is the only pension pot she has because we keep hearing about people having up to 3 small pension pots or so.
Any replies gratefully received.
Thank you !

scubascuba3

Terry_spurs wrote: »

Would like some advice please.
My wife has just turned 60 and wants to carry on working till her state pension comes into effect when she reaches 65.
She has a works pension that is nearly £25,000 in total.
Would she be able to take that sum out,subject to tax obviously and carry on working.
Also this is the only pension pot she has because we keep hearing about people having up to 3 small pension pots or so.
Any replies gratefully received.
Thank you !

I would have thought unlikely I.e. start taking the pension from a job she hasn't retired from. See what anyone else says.

cepheus

It seems that those who really understand personal finance and human psychology are quite horrified at the implications. Of course it's not what MSErs wish to hear, because they are responsible almost by definition.

On Thursday morning James Lloyd, director of the Strategic Society Centre thinktank, told a meeting that Osborne's move was a "catastrophic" mistake. Writing later on the Personal Finance website, he said:

"In one swoop, budget 2014 destroyed UK pension policy. The chancellor's announcement that individuals will no longer have to buy annuities is possibly the most catastrophically bad policy decision made by this government. It will almost certainly have to be reversed, if it can be."

As the IFS also warned the change would mean that those who still wanted to buy annuities could get even worse deals than are available now, because the market would shrink, Lloyd claimed Osborne was replacing the

"security and peace of mind of an annuity with insecurity and fear",

while tempting many to pump their money into buy-to-let properties, the effect of which would be to further inflate the housing market.

"As such, it is highly likely the chancellor's annuity announcement will also turn out to be disastrous for first-time buyers and could represent the death knell of aspirations of homeownership for millions of young families. In today's overheated property market, the chancellor has effectively decided to air-drop an enormous tanker of rocket fuel."

it's a clever if devious trick though, due to this

Julia Unwin, chief executive of the Joseph Rowntree Foundation, said that as well as risking further house price inflation, which would benefit the "haves" and not the "have nots", people could suddenly find that money they took out of their pensions and kept as savings would have to be used to pay for their social care, if and when they suddenly needed it. Currently money in pension pots is not taken into account.

gadgetmind

cepheus wrote: »

It seems that those who really understand personal finance and human psychology are quite horrified at the implications. Of course it's not what MSErs wish to hear, because they are responsible almost by definition.

Its certainly not what adults want to hear as generally we're happier managing our own personal finances than we are having the nanny state shackle us for our own protection.

"The chancellor's announcement that individuals will no longer have to buy annuities is possibly the most catastrophically bad policy decision made by this government. It will almost certainly have to be reversed, if it can be."

Mr. Lloyd needs to brush up on his facts before making predictions based on them. It's been many a year since people were forced to buy annuities.

"money they took out of their pensions and kept as savings would have to be used to pay for their social care, if and when they suddenly needed it"

Good. Why on earth should anyone else be expected to pay for their social care?